Coinbase Inc. became the best-known cryptocurrency exchange in the US by bringing Bitcoin to the masses. Now it’s looking to crack Wall Street.
The San Francisco-based company is developing several tools to lure institutional investors onto its platform. They include custodial services where investors can store large amounts of digital currencies, as well as enhanced trading capabilities, such as risk management and margin trading, which allows customers to use borrowed money.
While some of the products will be available to everyone, most will focus on institutional clients.
One such service, called Coinbase Prime, will offer lending, margin financing and over-the-counter trading.
The custody question — how to securely hold digital coins in an era of rampant hacking — has bedeviled money managers ever since cryptocurrencies emerged as an asset class. Coinbase began outlining efforts to provide a solution in November. Coinbase now tells Bloomberg it’s forging a partnership with Electronic Transaction Clearing Inc., a so-called qualified custodian for securities designated by the US Securities and Exchange Commission.
The regulator requires large
investment advisers to keep customer assets at qualified custodians to protect clients from theft or losses. Banks and broker dealers are common examples of such safe houses for securities. However, authorities haven’t offered clear rules around what it means to have custody of crypto-assets.
Coinbase’s new partner, Electronic Transaction Clearing, settled with the SEC in March over an alleged violation of customer-protection requirements and was fined $80,000. The agency accused ETC of improperly parking some securities belonging to customers at a clearing firm in late 2015. The firm didn’t admit or deny wrongdoing.
While Coinbase has said it doesn’t consider tokens on its exchanges to be securities, the regulatory view on that is hazy. The lack of clarity from financial watchdogs could explain why Coinbase hasn’t attracted big names to its product.